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March 6, 2020

As of March 5, 2020, the Coronavirus is leaving its toll on numerous industries, affecting the following countries:

Africa

  • Algeria
  • Nigeria
  • Senegal

Americas

  • Argentina
  • Brazil
  • Canada
  • Chile
  • Dominican Republic
  • Ecuador
  • Guadalupe
  • Mexico
  • United States

Eastern Mediterranean

  • Afghanistan
  • Bahrain
  • Egypt
  • Iran
  • Iraq
  • Jordan
  • Kuwait
  • Lebanon
  • Morocco
  • Oman
  • Pakistan
  • Qatar
  • Saudi Arabia
  • Tunisia
  • United Arab Emirates

Europe

  • Andorra
  • Armenia
  • Austria
  • Azerbaijan
  • Belarus
  • Belgium
  • Croatia
  • Czech Republic
  • Denmark
  • Estonia
  • Finland
  • France
  • Georgia
  • Germany
  • Gibraltar
  • Greece
  • Hungary
  • Iceland
  • Ireland
  • Israel
  • Italy
  • Latvia
  • Lithuania
  • Luxembourg
  • Monaco
  • Netherlands
  • North Macedonia
  • Norway
  • Poland
  • Portugal
  • Romania
  • Russia
  • San Marino
  • Slovenia
  • Spain
  • Sweden
  • Switzerland
  • Ukraine
  • United Kingdom

South-East Asia

  • India
  • Nepal
  • Sri Lanka
  • Thailand

Western Pacific

  • Australia
  • Cambodia
  • China
  • Hong Kong
  • Indonesia
  • Japan
  • Macau
  • Malaysia
  • New Zealand
  • Philippines
  • Republic of Korea
  • Singapore
  • Taiwan
  • Vietnam

So far, there have been 100,719 infections confirmed and 3,412 deaths in total. At the start of the outbreak in our first report we covered the state of affairs, the information available about the virus itself, and the initial risks it posed to travelers and corporations in affected countries, specifically China.

This report is meant to update decision-makers of the performance of the COVID-19 outbreak and the economic impacts to vital industries as the virus continues spreading across the world. This is especially relevant due to the sharp increase of confirmed cases in Europe, Asia, and the U.S. along with the first confirmed cases in Latin America which have provoked a drastic plunge of the global stock markets.

TRAVEL AND LODGING

As coronavirus spreads worldwide, the tourism industry experiences the largest impact. Several countries have imposed restricted travel, transportation, and migration policies as severe as closing borders with neighboring countries. Travel restrictions have forced major international airlines to cancel at least 200,000 flights, resulting in enormous losses to the aviation sector. Some hotels have faced days with single- or double-digit occupancy in hotels, particularly in Asia. The absence of Chinese tourists has also negatively impacted international tourism revenue as just in 2018 alone, Chinese travelers spent up to USD 277 billion (EUR 277 billion) on international travel.

Worldwide events have been cancelled including The Venice Carnival, an annual event attracting up to 3 million attendees. There has also been a temporary suspension of entry to pilgrims heading to Mecca in Saudi Arabia. Companies that depend on tourism, including airlines, hotels, tour operators, and restaurants, have been impacted. Economists indicated that the impact could affect the gross domestic products of some countries. According to the World Travel & Tourism Council, this sector contributed approximately USD 8.8 trillion (EUR 8 trillion) to the world’s economy in 2018.

On February 27, the Global Business Travel Association warned that the virus would likely cost the travel industry at least USD 560 billion (EUR 511.36 billion) during 2020. The International Air Transport Association estimates that airlines alone could lose up to USD 29 billion (EUR 26.4 billion) in revenue this year. The NYSE Arca Airline Index, which tracks 26 airlines in Latin America, Europe, and North America, has fallen 20% the week of February 24. Most international carriers have experienced a fall in their revenues during this week: American Airlines fell 7.7%; United Airlines decreased 2.4%; Southwest Airlines shares down 4.64%; Air France-KLM dropped 7.17%; Lufthansa experience a fall of 6.06%; Delta 2.8%. The Buckingham Research Group downgraded U.A., A.A., Spirit, Southwest, and Jet Blue; and, the Deutsche Bank also downgraded A.A., Alaska, Delta, Spirit JetBlue, and United.

The lodging industry has experienced decreases in booking volumes and hotel-room rates across the world due to the low demand. In addition, various major hotel companies have closed several hotels in mainland China. Marriott International estimated a USD 25 million (EUR 22.82 million) loss in monthly fee revenues considering the current low occupancy rate in the Asia-Pacific region. Marriott’s revenues per available room in mainland China have declined at least 90% in around 375 properties. The company estimates that the Chinese market represents 9% of the company’s global rooms. On February 26, the shares of the hotel fell by up to 8.4%.

Hyatt has closed at least 26 properties in China in response to the COVID-19 outbreak; the other 86 (which it operates in mainland China and Hong Kong) continue running at extremely low occupancy. Their revenues per available room have also decreased by 90% in mainland China and around 32% in the Asia-Pacific region. Meanwhile, Wyndham Hotels and Resorts has closed up to 1,000 hotels in China. Booking Holdings, one of the leading online travel agency companies who owns Booking.com, Agoda, Priceline, and Kayak, announced on February 26 that during this quarter travelers will likely book 5 to 10 percent fewer hotel-room accommodations through its online sites than the first quarter of 2019. Spanish Melia Hotel informed that due to the cancelation of several events, including events in Milan and the Mobile World Congress in Barcelona, the company had been economically impacted.

BANKING AND FINANCE

After the confirmation of several new cases of COVID-19 outside mainland China and Europe, the US’s Centers for Disease Control and Prevention predicated an increase of cases in the US. This resulted in a global stock market plunge. Concerns and fears about the mutation and spread of the COVID-19 has provoked the worst week for global stock markets since the 2008 financial crisis. The global indexes experienced the most dramatic plunges since 2011. It decreased to four-month lows, while government debts yield fell to unprecedented levels along with the crude oil prices. On February 27, 2020, the stock markets closed as follows: S&P 500 Index fell 4.4%; the Down Jones Industrial Average declined 4.4%; Nasdaq Composite Index fell 4.5%; the MSCI All-Country World Index decreased 2.2%; the FTSE 100 (UKX) fell 3.49%; the Japanese Nikkei dropped 2.1%, and the South Korea Kospi fell 1%.

Regarding significant commodities prices, the U.S. crude-oil slid 3.4%, with each barrel reaching a price of USD 46.09 (EUR 42.08) on the New York Mercantile Exchange. The Brent Crude fell 2.3% to USD 52.18 (EUR 47.64) per barrel on the intercontinental exchange. Natural gas features tumbled up to 4.5%. Experts indicate that prices reached 20% below a peak hit the industry had reached earlier this year. The industrial metals also dropped, with aluminum, tin, nicker, and zin falling in the London Metal Exchange. Other products which experiences loses were agriculture, including the decrease in prices of corn, wheat, cotton, live cattle, oats, and soybeans.

International banks and wealth managers who have operations in China have taken strict measures to avoid infection among staff. Citigroup Inc., JP Morgan Chase & Co., the Deutsche Bank have implemented travel restrictions for employees to Italy and various areas outside of Asia Pacific. In addition, Bankers have executed mechanisms such as conducting business by videoconference.

AUTOMOTIVE

The outbreak is affecting several major automakers by (1) forcing them to pull their foreign staff from plans across China, thus affecting their supply chain (it is estimated up to 80% of the global car manufactures require supplies from China) and (2) likely delaying consumer purchases in one of their most prominent (and struggling) markets in the world. Moody’s Investor Service has slashed its global vehicle sales forecast because the automotive supply chains are continually disrupted. The firm indicated that a 2.5% decrease in the sale would likely occur during this year, instead of the 0.9% previously forecasted. It is estimated that the overall decline of vehicle sales will fall from USD 90.3 million (EUR 82.45 million) to USD 88 million (EUR 80.35 million). Experts estimate that project sales will decline up to 2.9% in China, 1.2% for the U.S., and up to 4% in Western Europe.

The Chinese industry plays a significant role in the auto part supply chains and component network. Although some automotive manufactures based in China are reopening, the automakers operating in Wuhan, including Nissan, Peugeot, Kia, Honda, and Dongfeng, continue their production suspension. In the case of Nissan, it has its Chinese headquarters in that city resulting in 30% drop in shares in February. Other manufacturers that depend on the Chinese market are General Motors and Volkswagen. Hyundai, which highly depends on the exportations of China, has paused production at some of its national plants in South Korea due to shortages. Visteon and Aptiv estimate a shortfall in revenues of at least USD 60-80 million (EUR 54.78 -73.06 million) for the first quarter of the year.

In China, car sales fell 18.7% during January. The China Association of Automobile Manufacturers (CAAM) indicated that new energy vehicle sales dropped 51.6% on a year-on-year comparison. According to the China Passenger Car Association, retail sales of passenger cars in China fell 92%. During the first 16 days of February, in 2019, 59,930 units were sold — in the same interval this year, only 4,909 units were sold.

TECHNOLOGY AND E-COMMERCE

Apple’s shares have decreased by 9.5% because of the company’s dependence on Chinese factories and consumers. Apple was the first technology firm that stated that the epidemic was impacting its production and demand in mainland China. Moreover, Apple was forced to temporarily close 42 stores in January, most of them have not reopened yet. Microsoft stated that its computing business, which includes the Surface laptops, tablets, and Windows installation, would likely record lower sales than expected. The shares of the company fell 4% on February 27, after the company revealed that its supply chain was taking longer to return to normal operations than predicted. Mastercard Ind and PayPal Holdings Inc have also warned a likely economic impact. Experts warned that Dell Technologies Inc and Lenovo Group are also at risk of suffering economic obstacles.

China is pushing its tech companies to develop electronic products to aid the fight against the COVID-19. The Chinese Ministry of Science and Technology urged the tech sector to help face this crisis, suggesting the production of temperature screening machines, robots, and devices to reduce human contact. In February, Tencent (TCEHHY) opened a super-computing facility that will produce machines that run calculations faster than an ordinary personal computer, to help researchers reach a cure. Didi, one of the significant ride-hailing providers, offered services for free to medical organizations who need to perform tasks linked with data analysis, logistical support, or online stimulation. Chinese e-commerce JD.com has provided robots to deliver products to medical workers in Wuhan. Hundreds of drones have also been implemented across mainland China to monitor the development of the outbreak.

RETAIL AND FOOD

Retail and food —fast food, especially— is another industry that has been impacted by the coronavirus outbreak. According to S&P Global, it is estimated that the restaurant sector in China will only accomplish 45% to 55% of the expected revenues during this quarter compared to the first quarter of 2019. Due to fears of contagion, consumers have opted out of eating at public restaurants. Yum China Holdings Inc has closed 30% of its locations. Yum has the exclusive right to operate Taco Bell, Pizza Hut, and KFC restaurants in mainland China. Papa John’s shares tumbled to 10% on February 26 after the company had to close 50 stores in China.

The National Health Commission of China recommended limiting contact during food deliveries. Fast-food companies have been forced to take extraordinary mechanisms by ramping up the contactless pickup and delivery service to keep customers and workers safe. Contactless delivery is especially difficult as various residential compounds have limited access for drivers so customers are forced to pick up their food at the entrance. Meituan Dianping has introduced robots in some of its restaurants that help bring food from kitchens to delivery workers. McDonald’s has implemented contactless pickup and delivery of several items of their menu. Starbucks urged customers to order via its app so orders can be placed on tables inside the café entrances. But if Starbucks customers decide to enter the facility, clients have their temperature taken at the door.

On February 27th, Starbucks registered a reduction of 3% of its revenue, which has decreased by 11% since January. The company had to close more than 50% of its 4,290 stores in mainland China when the outbreak started; However, it has reopened at least 85% of the stores which were previously closed. Other companies with locations in China, such as Walmart and Home Depot, also expect economic losses as the virus continues spreading. Walmart expects a negative financial impact during the first quarter of the year, however, the company is doubling down on deliveries through the Chinese delivery and logistic company Dada-JD Daojia. Regarding Home Depot, it is estimated that at least 30% of its products come from China.

ANALYST COMMENT

Global stock markets will likely be fluctuating in the coming days as the number of positively tested patients keep rising across the world. Questions have been raised about the methods of transmission as people with neither a recent travel history nor contact with infected people have become ill. For the first time, the number of new cases registered outside the Chinese territory has surpassed the numbers inside the territory with an increase of confirmed cases particularly in Europe. Due to the arrival of the virus in Latin American, and new confirmed cases in Africa and the Middle East, the risks of exponential spread increases as several countries do not have enough medical equipment or medical labor staff to contain COVID-19.

We believe that as Chinese companies and factories continue to halt production, the global supply chains will likely continue to be disrupted. Moreover, as the virus continues spreading, we are at risk of a global pandemic. This will likely lead to a massive impact in the global economy as the operations of several major industries are threatened. Likewise, sectors such as the tourism industry will likely experience medium to long term economic losses due to the cancellation of major international events. As the virus is propagating in Asia, the risks of suspending or postponing the Tokyo 2020 Summer Olympic Games are increasing, which would lead to millions in losses for the aviation, hotels, restaurants, and travel industries.

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coronavirus